People on Sheares Bridge in front of the two durians bidding farewell to LKY. It was a very wet day.

12/07/2012

Good reasons for Olam to call off bond/warrant issues

If I did not hear it wrongly, one of the main reasons quoted for this cash call by Olam was to test its ability to raise fund from the market. This has been proven to be true with the $1.25b issue with Temasek’s undertaking to pick up all leftovers. And since Olam’s CEO has claimed that Olam did not have equity problems for the next 12 to 18 months, announcing the cancelling of this bond/warrant issue will pull the carpet under the feet of its critics.

It would also make Temasek look good to the citizens of Singapore. The perception now is that Temasek is rushing into such a deal like they did when the western banks came knocking on the doors and not enough time for due diligence. And if extending this helping hand ends up in the same way as in the last financial crisis, burning a big hole, it is not only a matter of red faces but the whole credibility of Temasek would be in question. Not forgetting more public money down the longkangs.

Some were critical of this intervention by Temasek using Sinkie money to save a non GLC companies. The white knight should be the parent company Kewalram Chanrai Group. Why should Temasek put its neck out when the parent company of Olam is not a party to it or prepare to lose its own money? Is the management of Temasek taking this too far, to bail out a non govt related entity using public funds just because it is a major shareholder and risking to foot the full bill for Olam? The non involvement of Kewalram Group in this bond/warrant issue is making people nervous and unhappy. Temasek should insist on a bigger participation by Kewalram to share the burden and the potential loss. Perhaps this is already done. Perhaps Temasek knows better and this is another good deal, another fire sale, to reap big profits. Whatever, Sinkie money must not be put to unnecessary risk too hastily. The only consolation is that Sinkies need not be unduly worried as Temasek is in good hands and getting the best advice money can buy.

27 comments:

The real test of its ability to raise funds from the market is for TH to just pick up its entitlement and not to underwrite it by word or deed, which is the work of the investment banks involved.

This fiasco, nay, a disastrous debacle makes these investment banks laugh all the way back to their doorsteps for doing almost nothing and the lawyers now drooling over their fees to the sue and counter sue drama in Act. 2.

I do not think Olam will call off the bond/warrant issue since it has been announced and publicized.It should not have been called at all since Olam CEO has gone on records to say that the company has more than sufficient fund to meet its needs.It should just a give a big dividend and perhaps bonus share to restore public confidence. I think Olam is a goner and is not too big to fail as rb has said in earlier post.BTW why is rd rooting for Olam?Does Olam carry a lots of red bean in its biological assets or rb holding a lots of olam in his portfolio?

Right now have we realised that they suddenly change direction and are calling for big salary increases for the lower income group, a move that was objected just not long ago by non other than the Union chief and the PAP when it was first tossed up by Professor Lim. Maybe it was just a wayang put up by the PAP using Professor Lim to start the ball rolling.

Obviously such salary adjustments will translate into more CPF contributions coupled with more money being held back in minimum sum and medisave, which is much needed cheap money for Temasek and GIC.

So, what do they care about throwing other people's money from the deck of the sinking Titanic, so they say.

Trusting investment banks advice is like trusting gamblers with contentment. Investment bankers often gave bad advice and get big fat fees. Investment bankers gave an occasional good advice get big fat fees and claim credit. Any way, big fat fees.

Tummysick still using investment bankers, goldman Sucks; equals more costs, more losses.

Underwriting fees are US$15 mil for the banks (2%). T gets only US$6.375 mil (0.85%) for sub-underwriting the whole lot. There are agency and administration fees for the next 5 years for the banks. Legal fees for the lawyers too.

With all these expenses, cost p.a. is close to 9%, cheap when market is demanding 10%pa. Thrown in are free warrants to entice shareholders. Free could mean cheap or near worthless.

It is a fantastic deal when other major shareholders do not undertake to take up their entitlements. Their bankers have enough of the coy scrips to provide additional funding to them.

What a great deal this is that bankers are able to extend further debt, when others thought that the coy's gearing is now too high. Brilliant bankers they are at persuading the backstopper in double quick time.

And yes, more fees and earnings for the banks who are backstopping the backstopper. Who says taxpayers' monies are involved.

With a 16% stake valued now at $550 mil and dropping, this deal may double and diversify its exposure with US$750 mil in bonds and free warrant thrown in. Certainly helps in achieving KPIs.

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